It Is Hard to Find Anyone in Congress Or Outside of Congress Who Does Not Agree That Our

Washington Report –December, 2009

An HBMA Government Relations Publication

Healthcare Reform

Ms. Louie and Mr. Burleigh Go to Washington

SGR Update

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Red Flag Rule Delay

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Healthcare Reform

Will Congress approve healthcare reform or won’t it? If healthcare reform is approved, what will be in the reform package? These are perhaps the two most common questions we’ve been asked over the past 10 months. The reality is that no one knows for sure. In April, we were told that Congress could pass healthcare reform legislation by mid-summer and have it on the President’s desk by the August Congressional recess. Later, we were told that definitely September. We could have healthcare reform on the President’s desk by mid-September. Then it was Thanksgiving and now the goal is to have a bill on the President’s desk by the State-of-the-Union address at the end of January. Even that deadline now appears to be in jeopardy.

It is hard to find anyone in Congress or outside of Congress who does not agree that our current healthcare system is broken and in need of reform. Unfortunately, that appears to be where consensus both begins and ends. The ideas for how to reform our nation’s healthcare delivery system are almost as numerous as there are Members of Congress.

Despite the consensus that the system is in need of reform, getting a bill passed by the Congress has proven much more difficult than many had predicted. The issues have become more complicated and the American people appear more polarized on the issue than ever before.

A final Senate vote on healthcare reform was held Christmas Eve morning. The bill passed the Senate on a straight party-line vote 60 – 39 (one Republican was absent). Several Democrats who felt the reform legislation did not go far enough expressed their displeasure with the bill but in the end, voted for the bill. Similarly, some Democrats who felt the legislation went too far also expressed displeasure with the final package but they, too, voted for the bill.

There is one remaining hurdle to getting a healthcare reform bill to the President – resolving the differences between the House and Senate passed versions.

As we have seen over the past 10 months, talking about the need for reform is much easier than achieving consensus on healthcare reform. The challenges that slowed the reform effort in both the House and Senate will be even more evident as the House and Senate work to resolve their differences. As the Washington Post put it in a story published shortly after the Senate vote was completed, “Now that the Senate has passed landmark health-care legislation with a rare Christmas Eve vote, the hardest work of all will begin: reckoning with long-standing differences between the House and Senate versions of reform and uniting behind a single bill that can be sent to the president.”

Outlined below are some of those areas where there appears to be consensus, as well as the issues for which consensus has been elusive.

Insurance Market Reform

While there are many defenders of maintaining a private insurance market, there are few who will defend the practices of health insurance companies. For example, while most Americans want to be able to buy health insurance in the private market, the American people almost universally decry the practice of denying insurance coverage to people with a pre-existing condition. Similar numbers of respondents also believe that insurance companies should not be allowed to drop someone because of high medical expenses. Finally, most people believe there should be no upper limits on the amount of money an insurance company is obligated to pay in order to cover the health expenses of insured individuals.

Reflecting this consensus, every serious healthcare reform bill considered by Congress this year has included provisions to ban pre-existing condition clauses in insurance contracts, mandate guarantee issue of insurance and lift life-time limits in insurance policies. It is a virtual certainty that these issues will be addressed as part of any bill that goes to the President.

Reducing the Cost of Health Insurance

Most Americans believe that health insurance costs too much. Double digit increases in health insurance premiums in both the individual and employer sponsored insurance market have made health insurance unaffordable for many individuals and employers. As a result, increasing numbers of Americans are dropping insurance coverage or moving to high-deductible insurance policies which leave the individual/family financially exposed. Employers are limiting the amount of their contribution to the cost of insurance and shifting more and more costs to the employee either through greater cost-sharing on the premiums or higher co-pays or deductibles.

In response to this, Congress has been working on creating new insurance subsidies for “low- income” individuals to try to make insurance more affordable. In addition, subsidies for small businesses that must purchase insurance in the more expensive small group market have also been proposed. What constitutes a “low-income” individual and what is defined as a “small business” is still an open question but it appears likely that a healthcare reform proposal sent to the President for his signature will include subsidies for low-income individuals and small businesses.

It appears most likely that a low-income individual or family will be classified as individuals or families with incomes up to 400% of the federal poverty level. This would mean, for example, that a family of four with a household income of less than approximately $88,000.00 per year would qualify for a health insurance subsidy.

The definition of a small business also varies and could be a business with anywhere from fewer than 10 employees to businesses with as many as 500 employees. Some proposals use the businesses payroll as a more appropriate marker rather than the number of employees. Regardless of how this is resolved, it appears likely that there will be some tax subsidy to help more small businesses provide health insurance for their employees.

Individual/Employer Mandates

This has become one of the more controversial issues in the healthcare reform debate. Again, it appears likely that any healthcare reform bill that makes its way to the President’s desk will include some type of mandate – individual or employer or both. At this point, the most likely outcome would be some type of mandate for both individuals as well as employers. It should be noted that the mandate for insurance will likely not start until 2014.

It is important to understand that there must be some type of mandate included in the bill if Congress is going to outlaw pre-existing condition provisions from insurance policies. If Congress should fail to adopt some type of mandate yet enact a federal ban on pre-existing condition clauses from insurance policies, it could actually make the current situation even worse.

The original intent behind putting pre-existing condition clauses in health insurance contracts was to prevent people from “gaming” the system. If everyone knew that he/she could purchase low-cost insurance at any time, regardless of his or her health status, why would they buy insurance? Many would simply decide to forego health insurance and wait until they got sick before they purchased insurance.

So a mandate will be a part of the final healthcare reform package as long as the language banning pre-existing condition clauses remains in the legislation.

Administrative Simplification

One area where there has been strong bi-partisan consensus has been in the area of administrative simplification (AS). Although the HIPAA statute was enacted more than a decade ago, the provider community has yet to experience most of the administrative simplification benefits promised by HIPAA. Both the House and Senate healthcare reform bills will include a variety of provisions aimed at trying to achieve the savings and efficiencies promised by HIPAA.

Medicare

Changes in the Medicare program will be a part of any healthcare reform package that gets to the President’s desk but unfortunately, the changes will not be the types of reforms that will bring smiles to the faces of many healthcare providers.

Cuts in future provider payments (hospitals, physicians, home health agencies, etc.) will be a part of any healthcare reform initiative presented to the President. Medicare expenditure cuts will likely total somewhere in the neighborhood of $400 Billion over the next 10 years. In other words, as a result of enactment of the healthcare reform legislation, Medicare will spend $400 Billion less than would have otherwise occurred, had the healthcare reform bill never been enacted.

The single largest share of reductions in Medicare spending over the next 10 years will come from future provider payments. Instead of providers receiving full market-basket increases reflecting changes in medical inflation, the amounts of these inflationary increases will be reduced. The future reductions in provider payments will likely be in the range of $170 - $190 Billion over 10 years.

The second largest share of Medicare payment reductions will come from the Medicare Advantage (MA) program. This will be in the form of lower payments to the private insurance companies that offer MA products. In all likelihood, the amount of the reduction in MA plan payments will be between $120 and $130 Billion over 10 years.

According to the Congressional Budget Office (CBO), tens of Billions in long-term savings to the Medicare program will also be the result of unspecified cuts that will be proposed by a new Medicare Commission. While the name of the Commission and the Commissions scope of authority still need to be worked out, this new Commission will have wide latitude to recommend payment changes for all types of Medicare providers. Unlike the current Medicare Payment Advisory Commission (MedPAC) whose recommendations are strictly advisory in nature, the new Commission would have far greater impact on future provider payments.

How to Cover the Uninsured

Although there is no clear consensus between the House and Senate on how to provide insurance coverage for Millions of uninsured Americans, the final bill will have some mechanism for covering the uninsured. This is likely where consensus will be most difficult to achieve and in the end, could prove to be what kills healthcare reform. If a compromise is reached, it is expected that by 2019, approximately 92 – 96% of all Americans will have some type of insurance coverage. This compares to the estimated 83% of Americans who would have insurance if we did nothing to change the current system. Of the estimated 54 Million people who would be uninsured in 2019 if we do nothing, 32 – 34 Million would have some type of insurance coverage. This would mean that in 2019, approximately 20 – 24 Million people would still be without health insurance.

The House healthcare reform proposal, the Affordable Health Care for America Act, has a very robust “public option”. The Senate, by comparison, did not include a public option in its version of healthcare reform, the Patient Protection and Affordable Care Act. Instead, the Senate relies upon a system of vouchers or subsidies individuals could use to purchase health insurance (offering minimum benefit packages) through newly established healthcare exchanges. The House bill also calls for the establishment of state-based “Exchanges” but these Exchanges would offer a new public program to compete with commercial insurance products available through the Exchange. The government negotiated products contemplated in the Senate proposal would be overseen by the federal Office of Personnel Management, the same agency that oversees the Federal Employee Health Benefits program.

Both the House and the Senate include provisions in their respective bills expanding Medicaid eligibility. The House bill would extend Medicaid coverage to include any individual with an income below 150% of the federal poverty level. The Senate proposal also expands Medicaid to all low-income individuals but tops out at 133% of poverty. As with a number of other provisions, this Medicaid expansion will likely not go into effect until 2014. Both the House and Senate included language authorizing the federal government to pay the cost of covering these newly eligible individuals. However, how long the federal government will cover these costs and how much of the cost the federal government will cover will have to be negotiated between the House and Senate.

It is not clear whose position will prevail in the House-Senate negotiations. This will likely prove to be one of the more contentious issues.

Paying for Healthcare Reform

After the public option vs. no public option debate, the second most contentious issue for House-Senate negotiators will be how to pay for healthcare reform. Both the House and Senate raise significant amounts of new revenue (i.e. taxes) but through very different methods.

The House relies primarily upon a new excise tax that would be imposed on “high income” individuals. The new excise tax would raise approximately $460 Billion in new federal revenue over the next 10 years. In addition, penalty payments by individuals and employers not adhering to the respective mandates would raise approximately $165 Billion between 2014 and 2019 (the penalties would not take effect until 2014). Total new revenues raised by the House bill would be $781 Billion over 10 years.

The Senate proposes to impose a new 40% federal excise tax on so-called “Cadillac” health plans. These would be plans for which the individual premiums exceeded $8,500 per year for an individual policy or $23,000 per year for a family policy. The “Cadillac” health plan excise tax is estimated to raise approximately $149 Billion between 2013 and 2019. Additional revenue would be raised through the imposition of fees on certain manufacturers (medical device) and insurers. A new hospital tax would raise $87 Billion and other revenue/fee increases would generate approximately $76 Billion in new revenue to the federal treasury. In total, the Senate raises approximately $498 Billion in new revenues compared to the $798 Billion in the House bill.

In addition to the House bill relying much more heavily on new taxes to fund healthcare reform, there are major philosophical differences in where that money should come from that may prove difficult to bridge.